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October 2017 was not good for my trading activity. The market kept whipsawing between rises and falls, and though the Bank Nifty on which I primarily trade went up 4 % in the month, I suffered a considerable drawdown.

Here is a table showing my trading performance relative to other benchmarks.

Table showing my Trading performance in relation to other benchmarks

As you can see, my trading performance has resulted in a nearly 25% fall in the overall return in the last 3 months, of which 14% was in October alone. I do hope the tide changes soon.

Overall though, I am still ahead of all other benchmarks for the year. This is the nature of the trend following trading game. Huge outperformance for brief periods, and then steady attrition in returns for long periods. Hopefully, it means that you come out ahead of the investment pack in the long run.

However this large volatality in trading returns makes me more and more inclined to include options strategies as part of the trading mix. i am currently engaged in developing the technical expertise to analyse and develop Options Trading Strategies. It will take a long time, perhaps as long as a year or two. But I convinced that that is the way to go.

Investment Performance-October 2017

Here I am with another edition of my investment performance. This was a month in which the market, especially, Small and Midcap Stocks went up considerably, after a relatively muted August and September.

While the markets were strong, my own stocks did only ok. IDFC and IDFC Bank continued to do poorly, while certain other stocks, like CanFin Homes, EClerx and Ajanta also did poorly. On the other hand, Oberoi Realty, which is by far my biggest holding, did fine, and so did Bajaj Finserve/ A whole host of smaller holdings, like DCM Shriram, BKT, Indiabulls Housing Finance also did well.

Overall, of all the benchmarks, my porfolio did marginally worse than the Midcap Index, and considerably worse than the SBI Small and Midcap Fund, which had a blowout performance. Otherwise, on both a monthly and yearly basis, my investment performance was marginally better than the performance of the HDFC Top 200 fund, and was considerably better than the indices as well as both the PMS schemes I own, the MOSL “Value Strategy” fund, as well as the Centrum Deep Value Fund. One must wonder why anyone should invest in these PMS’s and give managers a fee, when one can have a reasonable portfolio and do considerably better.

Graph showing my investment performance in relationship to other benchmarks

I have also tabulated the results:

Table showing my investment performance in relation to other benchmarks

The Yo-Yo of markets during the month was not at all good for performance of my trading activity in September. I use mostly trend following strategies, across different time frames, and sideways markets did not do much for the returns from trading activities, and in fact, there was capital loss.

I am still up for the financial year, and quite well. But the whole situation is testing my patience now. These are the periods when stoicism is valuable as a philosophy, and I am as stoic as they come. So we will continue the same, no matter what the state of my patience.

Here is a tabular representation:

Comparison of investment and trading performance of my portfolio and trading activity relative to various benchmarks

Investment Performance-September 2017

September 2017 was a time when markets took a small pause. All indices took a small hit over the values of end-A

ugust 2017, and were even more down compared with end-July 2017. Midcaps and small caps till better than large caps.

Accordingly, my investment performance also suffered, though I still managed to eke out a postive return for the month. This is primarily due to the higher contribution of midcap and small cap stocks in my portfolio.

The SBI Small and Midcap Fund was the standout for the month, rising more than 5% in a month. So was the Centrum PMS. Both of these did better than my own investments. Centrum PMS came back to life after a nice break. The Motilal Oswal PMS continues to languish. September was also not a good month for the HDFC Top 200 fund.

Here is a graphical representation of the above. As time goes on, clearly, the men are getting separated from the boys.

Graphical Representation of the investment performance compared to several benchmarks.

And for those who prefer numbers, here is the same data in numerical format.

Comparison of investment and trading performance of my portfolio and trading activity relative to various benchmarks

The market turned distinctly weak in August 2018. All the major indices fell, with the Bank Nifty falling by more than 3%. Continued FPI selling, tepid results, GST related disruptions and continued geopolitical tension was somehow contributory to the relatively tepid movement.

Investment Performance August 2018

Except for the SBI Small and Midcap Fund, all the other benchmarks, as well as my own investment performance had a negative performance for the month.

While my investment performance continues to trail the SBI Small and Midcap Fund (this stands to reason: Small and Midcap Stocks have outperformed the Large Caps, and while portfolio is geared towards Small and Midcap Stocks, I have several large caps, like Reliance, ITC, L&T, ICICI Bank in my porfolio. Naturally, my portfolio performance is a cross between the Small Cap Performance and Large Cap Performance), it does outperform all other benchmarks.

The performance of the PMS schemes is particularly distressful. I would imagine that PMS managers should outperform my own investment performance, or those of MF managers (who charge much less). But in fact, PMS schemes have clearly underperfomed this year. Now, it may be that some manager did outperform, it does not appear so for the average of all managers. And those who do outperform, don’t seem to do it consistently over a long period.

My portfolio continues to underperform a bit because of the drag from IDFC, IDFC Bank and EClerx, which are in my top five holdings. On the other hand, outperformance by Bajaj Finserv, HPCL, amongst other stocks, allows be to clock in respectable performance.

Trading Returns and Performance

July 2017 was a great month for my trading performance. Here is a table which shows the trading returns over the last nine months.

Table of Returns for different time periods

As can be seen, my trading activity gave a return of 59% in July 2016 alone. This was in conjunction with a rise in the bank nifty of 8.15%. However, as I kept withdrawing capital from trading and deploying it in debt, I am not clear as to what the trading capital showed be considered. In any case, trading activity for me is a business which created income, not a wealth generating activity. Hopefully, wealth will get generated through my debt, equity and real estate portfolio. So I am far more interested in the absolute returns from my trading activity.

This month, I also started trading commodities in earnest. The total capital set aside for commodities is still a fraction of the total for the Bank Nifty. Hopefully, over a period of time, this shall rise.

Currently, I am trading Crude/Natural Gas, Gold/Silver, Zinc/Copper. I feel that trading a basket of instruments shall improve the stability of my trading performance. However, I am still not confident of increasing the position size of the commodity basket. Over a period of time, I shall slowly increase this.

Below is my trading equity curve till July 2017.

Trading Equity Line for the last nine months (Normalized to an arbitrary base)

What about drawdown? Well, in July 2016, there were several days where the trading equity was at the maximum, and there was no drawdown at all.

Here is the drawdown:

Trading Drawdown Curve (Normalized to an arbitrary figure)

All in all, a very satisfying performance in trading activity in July 2017.

Investment Performance in terms of returns

Below is a graphical representation of my investing performance upto July 2017. Further below is a table of returns.

My investing performance relative to other benchmarks

First, some housekeeping. You will notice that this graph is different from earlier ones, where I had also mentioned my trading performance. The reason for this change is simple. The trading performance in July was simply crazy. So if this line is also added to the above graph, then the range on the axis changes in such a manner that there is no possibility of distinguishing between the various investment benchmarks. In addition, there is difficulty in understanding what the exact trading capital is. As a result, it is best to look at trading and investing performance separately, and maybe, once a year or so, revisit a comparison. In any case, below, I also present a table which details the returns on trading along with investing benchmarks.

As can be seen from the graph above, and the table below, the trend established earlier still continues. The mutual funds outperform my investment performance, which outperforms the PMS schemes from Motilal Oswal and Centrum. All of them outperform index benchmarks, except the Bank Nifty Index.

My investment performance continues to be marred by underperformance of my biggest holdings-IDFC, IDFC Bank and Oberoi Realty. On the other hand, Bajaj Finserv continues to outperform, as to other stocks like Indiabulls Housing Finance.

In July, I also converted about 4% of my portfolio to cash. I also made a concerted effort to pare down the number of stocks in my portfolio (from around 100 to around 75). I will continue this exercise of bringing down the portfolio size to around 30-40 stocks over the next one year. Among my larger holdings, I have completely exited Muthoot Capital Services (and have partially switched to Muthoot Finance), Munjal Auto (and partially added to Munjal Showa), Alkyl Amines and Bayer Cropsciences (and have partially switched to PI Industries and also added Tata Chemicals). I have further exited IL & FS Investment Managers. I have also exited Tata Steel (and switched to Vedanta and Tata Investment Corportation). I have exited Sobha Developers and added to NESCO. I have exited Vardhman Acrylics and added to Vardhman Textiles. I have also exited JP infratech and JP Power and added to Jain Irrigation. I have further added to IRB infra and Pokarna. I continue to slowly accumulate Pharma Stocks (Sun and Dr Reddy’s). I have completely exited my small positions in Hindalco, EIH, IL&FS Transportation Networks, Federal Bank, Laxmi Vilas Bank. Finally, I have finally exited MPS ( a large holding) and added to EClerx.

All of these switches have been done more to reduce the number of stocks I want to track, than any fundamental reasons. In some instances (like MPS), I did not like the business prospects. In some cases (Bayer or Munjal Auto), I just felt that the price had run ahead of the business.

Here is a table of my investment returns compared with various other benchmarks.

“Every job looks easy when you’re not the one doing it” -Jeff Immelt, shortly after stepping down as CEO of GE after 17 years

“Obviously you don’t make money if you’re wrong. What most people don’t realize is that you don’t make money if you’re right in consensus. Returns [or alpha] get arbitraged away. The only way you make money is by being right in non-consensus. Which is really hard.”-Former Benchmark Capital Partner Andy Rachleff

Trading and Investing Returns-June 2017

It’s the 10th of the month again, and its time for another update on performance. Nothing really new to report, except that I started trading commodity futures in earnest in June, and had I not, trading performance would have been weak. This has only strengthened my conviction that diversification across uncorelated instruments is important while using trading systems.

The rest was more of the same. The mutual funds outperformed my own investment performance, which in turn outperformed the PMS benchmarks. Something for the PMS folks to think about.

Trading Performance May 2017

Investment Performance May 2017

Again, after a haitus, I present my trading perfonmance and investment performance.

Here is a graph of my performance, both for trading and investment, in comparison with various benchmarks. The benchmarks I have included are the performance of the HDFC Top 200 and SBI Small and Midcap Funds, and two PMS’s I have invested in, the MOSL Value Strategy, and the Centrum Deep Value Strategy, in addition with 3 indexes.

Trading Returns and Investment Returns

As can be seen, the trading has had a great last few months. However, there is a caveat here. In my base calculation for capital employed (i.e., the 1000 figure in November), for trading, I have only included the actual capital employed in my brokerage accounts, and not the shares pledged as margin, or the reserve cash I hold. Still, all in all, a creditable performance.

My investment performance in the last seven months is also not bad, second only to the HDFC Top 200 Fund. I otherwise beat both the PMS’s and the indexes handily.

What risk did I take to get these stellar trading returns? Quite a bit. Please see below:

Absolute trading equity line.

As can be seen, there is a deep drawdown in the months of October and November 2016. This corresponded to three external events, Brexit, Trump Election and Demonetization. Such deep drawdowns are what keeps one afraid of trading in futures. I have since changed strategies (more in another post), and hopefully, I can avoid such sharp drawdowns in the future.